Yesterday I attended a lively debate held by BAHA (the British Association of Hospitality Accountants) on the pros and cons of ‘Dynamic Pricing’. Dynamic Pricing is what you see airlines using with their fares. It is based on the principle that the right rate to charge for a room night is what the customer is able and willing to pay, and means that a hotel might change its room rates daily or even within a day if up-to-the-minute market information reveals a change in supply or demand.
By under pricing, the hotel potentially leaves money on table; by overpricing, it may price itself out of the market. The constant challenge, of course, is trying to determine the optimal price on a given day or afternoon. Prices may rise as occupancy increases (giving incentives for early booking), but might also drop again at the last minute if target occupancy levels look as if they wont be reached.
The debate was whether or not dynamic pricing is the only key to unlocking revenue potential and taking advantage of every revenue opportunity out there.
Whilst there were compelling arguments for dynamic pricing – primarily of the reminder that we are in business to make a profit – those against the motion reminded us of the following:
- The need to consider the lifetime value of the guest, not just the price they pay today
- The additional incremental revenue that may be generated by that guest. (Anyone who has staying in Las Vegas will know that this is a key driver on determining the room rate and the standard of room.)
- Does a lower price devalue your brand?
- Recognition of guest loyalty; will changing your pricing alienate your most valued guests and encourage them to go elsewhere?
- How can travel companies budget if prices are so variable?
- Can your distribution systems cope with the changes?
- How consistent are any price changes against advertised promotional rates?
- If focusing just on rooms on the book, does this take into account forecasted bookings?
- How do guest feel when they talk to someone who has paid half the price they paid?
- Is your offer suddenly worth any more (or less) today or this afternoon just because the market demand has shot up (or down)?
Should you be consistent or should you go with the flow and let the perceived market forces dictate your pricing levels? In other words should your hotel compete on price?
What’s your view on this? Do you flex your prices according to demand?
Caroline CooperShare This: